Oil Rises 3% on Trade Talks, Cushing Stock Dip

A cocktail of stimulating factors, from U.S.-Sino trade talks to data suggesting lower Cushing stockpiles, pushed oil to new highs in the new year, though advice to proceed cautiously continues from the research side of the business.

By 11:15 a.m. ET, U.S. WTI crude was up $1.62, or 3.4%, at $49.58 per barrel, after reaching a 2019 high of $49.79.

Brent, the U.K.-traded global crude benchmark, was up $1.52, or 2.7%, at $58.58, after rallying to $58.92 earlier.

A Bloomberg opinion piece also warned of a more likely outcome if crude prices got a lot higher: Tweets from President Donald Trump aimed at pushing the market lower.

“Trump” may soon have to direct his ire to oil prices and the actions of his ally, Saudi Arabia, once again,” Julian Lee, a Bloomberg opinion columnist, said, as U.S. West Texas Intermediate looked ready to break the key resistance of $50 per barrel soon.

Lee noted that the Saudis have begun delivering on the 1.2 million barrels per day in cuts that the OPEC+ OPEC+group, which includes Russia, pledged and the president could respond adversely to the resultant price boom if he felt it was beginning to weigh on economic growth.

The U.S. and China kicked off talks in Beijing Monday in the first face-to-face meeting since Trump and Chinese President Xi Jinping in December agreed to a 90-day truce in their trade war. While stocks on Wall Street began a quiet morning awaiting outcome of the talks, oil bulls cheered news that Chinese Vice Premier Liu He unexpectedly attended the opening of the meeting.

It “is a sign that the Chinese are very serious about securing a trade deal,” Phil Flynn, an oil bull himself and analyst at The Price Futures Group in Chicago, wrote in his morning commentary.

Optimism has run higher in equity markets to oil since Friday after Fed Chairman Jerome Powell indicated he will be patient with future rate hikes, as Trump has been hoping the central bank would. Powell made his remarks after a strong U.S. jobs report for December.

Monday’s trading in oil got a further boost from a drop in WTI inventory estimates at the Cushing storage hub, which fell by 565,225 barrels between Jan. 1 and Jan. 4, according to private data seen by traders.

Despite that, some like Dominick Chirichella, director of risk and trading at the Energy Management Institute in New York, cautioned that it was “still too early to declare that the downtrend has reversed” in oil, although there were signs suggesting “a change in direction.”

Analysts at Goldman Sachs (NYSE:GS) weighed in, forecasting a 3-month and 6-month price of $62.50 and $67.50 for Brent versus their previous call of $70. For WTI, their price view is $55.50 versus a previous $64.50. The Goldman analysts cite new pipelines that will release more cheap U.S. shale oil from the Permian Basin and slowing Chinese demand, among others.

The first contraction in 19 months in China’s Purchasing Managers Index (PMI) in December has strengthened some economists’ belief that the world’s second-largest economy is headed for a slowdown. And despite the feel-good vibe over the US-Sino talks, some say it’s premature to conclude that it’s a done deal. Any shift in China’s stance toward the trade talks would be volatile for equities and, consequently, crude prices./investing.com

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